Regional Mobility of China in LATIN AMERICA

Regional Mobility of China IN LATIN AMERICA

Regional Mobility of China IN LATIN AMERICA Authors:

Margarita Florez David Cruz

Support: Regional Mobility of China IN LATIN AMERICA 02

Over the last decade, bilateral agreements between China and distinct Latin American countries were simultaneously signed within a wave of diplomatic recognition at the beginning of “One China.” This slogan symbolized recognition from Latin American governments that a single country exists, called China. This includes Taiwan, which reclaimed diplomatic independence and, since the Beijing government considers it an integral part of its territory, there has been conflict. This is the premise of two editions of China’s Policy Paper on Latin America and the Caribbean, the most recent published in 2016 (China-CELAC Forum, November 25, 2016). In the aforementioned agreements, it was Authors: determined that China would be willing to establish and develop intergovernmental relationships with Latin American and Caribbean Margarita Florez countries, especially those that had initially accepted “One China.” It was David Cruz understood that this principal was fundamental to later establish the China- Latin America and Caribbean Comprehensive Cooperation Association.

One example of this is the reconfiguration of the Panama - China and Panama - Taiwan relationship over the past year. When it was thought that the Panama-Taiwan relationship was finalized (Vida, June 13, 2017), a Panama-China negotiation, which included twenty agreements, was October 2017 immediately announced. The negotiation was related to a commercial and tourism exchange, energy and mass transport development projects, in Support: addition to a bilateral free trade agreement. It is expected that some of these treaties will be signed at the end of 2017 during a meeting between the presidents of both countries (EFE, September 16, 2017).

The intergovernmental agreements signed between Latin America and Caribbean countries and China are of a different nature (Gómez, November 12, 2015). These treaties stress bilateral agreements that follow Design and Layout : Armando Rodriguez a universal format, and contain clauses on arbitration and the possibility of Copy-editing: Juan Solano international courts, in the case of a dispute or controversy between Translation: Emily Schmitz countries.

Asociación Ambiente y Sociedad Calle 19 # 3-50, oficina 16 03 However, citizens had little information on the signing and reach of these Bogotá, Colombia treaties, and even less on conditions regarding financing from national www.ambienteysociedad.org.co development banks. This is why Costa Rica’s impenetrable character led Twittter: ambienteysoc to controversy during initial discussions, in 2005, to sign a treaty between Facebook: ambienteysociedad Instagram: @ambienteysociedad the two countries, which granted a 300 million loan to be exchanged for bonded debt. This credit was included in the conditions to reestablish Bogotá, Colombia, october 2017 diplomatic relations between both countries (Portafolio, August 29, 2008).

The issue brought the Government face to face with some political parties, and a civil society intervention became necessary to obtain information about the lending process and interest rates. Initially, these details were withheld under the argument of “bank confidentiality” (La República, August 30, 2008).

Years later, it was announced that within the development of the agreement between China and Costa Rica, the Costa Rican Government resumed the El Limón highway expansion project (Sancho, July 21, 2014), a decision which has been questioned by multiple parties. Financing for the project was set at $395 million from the Export-Import Bank of China (China Exim Bank), and it was established that the company responsible for the project would be China Harbour Engineering Company (CHEC), one of three companies sanctioned by the World Bank (WB) for poor performance in the Philippines (World Bank, January 14, 2014). Additionally, it was asserted that the cost, $485 million dollars, was much higher than the cost estimated by a 2012 Inter-American Development Bank (IDB) study, which had placed the figure at 280 million (Cabezas, March 10, 2014).

China’s Play in the Region

Over the last decade, bilateral agreements between China and distinct Latin American countries were simultaneously signed within a wave of diplomatic recognition at the beginning of “One China.” This slogan symbolized recognition from Latin American governments that a single country exists, called China. This includes Taiwan, which reclaimed diplomatic independence and, since the Beijing government considers it an integral part of its territory, there has been conflict. This is the premise of two editions of China’s Policy Paper on Latin America and the Caribbean, the most recent published in 2016 (China-CELAC Forum, November 25, 2016). In the aforementioned agreements, it was determined that China would be willing to establish and develop intergovernmental relationships with Latin American and Caribbean countries, especially those that had initially accepted “One China.” It was understood that this principal was fundamental to later establish the China- Latin America and Caribbean Comprehensive Cooperation Association.

One example of this is the reconfiguration of the Panama - China and Panama - Taiwan relationship over the past year. When it was thought that the Panama-Taiwan relationship was finalized (Vida, June 13, 2017), a Panama-China negotiation, which included twenty agreements, was immediately announced. The negotiation was related to a commercial and tourism exchange, energy and mass transport development projects, in addition to a bilateral free trade agreement. It is expected that some of these treaties will be signed at the end of 2017 during a meeting between the presidents of both countries (EFE, September 16, 2017).

The intergovernmental agreements signed between Latin America and Caribbean countries and China are of a different nature (Gómez, November 12, 2015). These treaties stress bilateral agreements that follow a universal format, and contain clauses on arbitration and the possibility of international courts, in the case of a dispute or controversy between countries.

However, citizens had little information on the signing and reach of these treaties, and even less on conditions regarding financing from national development banks. This is why Costa Rica’s impenetrable character led to controversy during initial discussions, in 2005, to sign a treaty between the two countries, which granted a 300 million loan to be exchanged for bonded debt. This credit was included in the conditions to reestablish diplomatic relations between both countries (Portafolio, August 29, 2008).

Information about treaties between China and Latin America has been widely disseminated through inquiries and political pressure, allowing civil society to understand these types of agreements and how they have been consolidated into projects that have already been linked to human rights violations and negative environmental impacts. Over the last decade, bilateral agreements between China and distinct Latin American countries were simultaneously signed within a wave of diplomatic recognition at the beginning of “One China.” This slogan symbolized recognition from Latin American governments that a single country exists, called China. This includes Taiwan, which reclaimed diplomatic independence and, since the Beijing government considers it an integral part of its territory, there has been conflict. This is the premise of two editions of China’s Policy Paper on Latin America and the Caribbean, the most recent published in 2016 (China-CELAC Forum, November 25, 2016). In the aforementioned agreements, it was determined that China would be willing to establish and develop intergovernmental relationships with Latin American and Caribbean countries, especially those that had initially accepted “One China.” It was understood that this principal was fundamental to later establish the China- Latin America and Caribbean Comprehensive Cooperation Association.

One example of this is the reconfiguration of the Panama - China and Panama - Taiwan relationship over the past year. When it was thought that the Panama-Taiwan relationship was finalized (Vida, June 13, 2017), a Panama-China negotiation, which included twenty agreements, was immediately announced. The negotiation was related to a commercial and tourism exchange, energy and mass transport development projects, in addition to a bilateral free trade agreement. It is expected that some of these treaties will be signed at the end of 2017 during a meeting between the presidents of both countries (EFE, September 16, 2017).

The intergovernmental agreements signed between Latin America and Caribbean countries and China are of a different nature (Gómez, November 12, 2015). These treaties stress bilateral agreements that follow a universal format, and contain clauses on arbitration and the possibility of international courts, in the case of a dispute or controversy between countries.

Regional Mobility of China IN LATIN AMERICA 04

The guidelines for Latin America-China relations are outlined in both editions of the Policy Paper. This document foresees a strengthening of cooperation and investment agreements, specifically for exploration and extraction activities in energy, natural resources, agriculture, computer sciences, technology, manufacturing, and infrastructure development (China-Celac Forum, November 25, 2016). It also projects the development of a series of initiatives and measures aimed at strengthening bilateral relations, including the signing of Free Trade Agreements (FTA), the establishment of investment protection agreements, the activation of cooperation funds, preferential lending, specific loans for infrastructure, other forms of financial cooperation, and the exploration of new types of investment, such as the Public-Private Partnerships (PPP). Over the last decade, bilateral agreements between China and distinct Latin American countries were simultaneously signed within a wave of diplomatic recognition at the beginning of “One China.” This slogan symbolized recognition from Latin American governments that a single country exists, called China. This includes Taiwan, which reclaimed diplomatic independence and, since the Beijing government considers it an integral part of its territory, there has been conflict. This is the premise of two editions of China’s Policy Paper on Latin America and the Caribbean, the most recent published in 2016 (China-CELAC Forum, November 25, 2016). In the aforementioned agreements, it was determined that China would be willing to establish and develop intergovernmental relationships with Latin American and Caribbean countries, especially those that had initially accepted “One China.” It was understood that this principal was fundamental to later establish the China- Latin America and Caribbean Comprehensive Cooperation Association.

One example of this is the reconfiguration of the Panama - China and Panama - Taiwan relationship over the past year. When it was thought that the Panama-Taiwan relationship was finalized (Vida, June 13, 2017), a Panama-China negotiation, which included twenty agreements, was immediately announced. The negotiation was related to a commercial and tourism exchange, energy and mass transport development projects, in addition to a bilateral free trade agreement. It is expected that some of these treaties will be signed at the end of 2017 during a meeting between the presidents of both countries (EFE, September 16, 2017).

The intergovernmental agreements signed between Latin America and Caribbean countries and China are of a different nature (Gómez, November 12, 2015). These treaties stress bilateral agreements that follow a universal format, and contain clauses on arbitration and the possibility of international courts, in the case of a dispute or controversy between countries.

The issue brought the Government face to face with some political parties, To advance these aims, the Policy Paper puts special emphasis on and a civil society intervention became necessary to obtain information promoting cooperation through the China- CELAC Forum and about the lending process and interest rates. Initially, these details were strengthening dialogue and collaboration between sub regional organisms withheld under the argument of “bank confidentiality” (La República, and regional multilateral financial institutions, in order to form a August 30, 2008). comprehensive and balanced joint China-LAC cooperation network. To accomplish this, the China-Latin America and Caribbean Countries Years later, it was announced that within the development of the Cooperation Plan (2015-2019) will serve as a guide (China-CELAC Forum agreement between China and Costa Rica, the Costa Rican Government 2015). Further detail will be provided in this document. resumed the El Limón highway expansion project (Sancho, July 21, 2014), a decision which has been questioned by multiple parties. Financing for The relationship between Latin America and China had a turning point in the project was set at $395 million from the Export-Import Bank of China 2014 when the China-CELAC Forum (CCF) was created, since an (China Exim Bank), and it was established that the company responsible agreement with the Community of Latin American and Caribbean States for the project would be China Harbour Engineering Company (CHEC), (CELAC) —a regional body created in 2011 — was added to the one of three companies sanctioned by the World Bank (WB) for poor intergovernmental agreements (Gómez, November 12, 2015). This entity performance in the Philippines (World Bank, January 14, 2014). defines itself as an intergovernmental mechanism composed of 33 Additionally, it was asserted that the cost, $485 million dollars, was much countries across Latin America and the Caribbean, whose discussions are higher than the cost estimated by a 2012 Inter-American Development regulated by a respect for diverse political positions and focused on Bank (IDB) study, which had placed the figure at 280 million (Cabezas, integration (CELAC, December 3, 2011). They emphasize the demand to March 10, 2014). recognize the included countries multiculturalism and plurinationality. CELAC emerged from the context of the Latin American and Caribbean Information about treaties between China and Latin America has been Summit on Integration and Development (CALC) and The Rio Group’s widely disseminated through inquiries and political pressure, allowing civil XXII Summit—a former space for political debate, existing since the 80s. society to understand these types of agreements and how they have been consolidated into projects that have already been linked to human rights The CELAC has developed an active agenda of meetings and ministerial violations and negative environmental impacts. summits, including: the Founding Summit (2001); I Summit in Santiago, Chile in 2013; II Summit in Havana in 2014; III Summit in San José, Costa Rica in 2015; IV Summit in Quito in 2016; and the last summit, in Punta Cana in January of 2017. Currently, El Salvador serves as the chair and initiated relations with Russia and China, in coordination with the European Union.

Implementation appears to be greater than what was achieved by the Union of South American Nations (USAN), a body created in 2000 but which has not signed this type of agreement as a regional block. Both of these bodies look for integration, and emphasize the construction and advancement of an infrastructure agenda—but with different mechanisms, as will be further outlined below. Regional Mobility of China IN LATIN AMERICA 06

China-CELAC Forum (CCF)

The Forum was installed in January of 2015 in Beijing with the objective to “promote the development of the Comprehensive Cooperation Partnership between China and Latin America and the Caribbean, characterized by equality, mutual benefit, and shared development” (China-CELAC Forum, 2016). This initial meeting was carried out with the motto “New platform, new starting point, new opportunities – joint efforts to promote the China-Latin America and the Caribbean Comprehensive Cooperation Partnership.”

The body’s structure includes the following: (i) ministerial meetings; (ii) dialogue at the chancellor level; and (iii) meetings with national coordinators. The CCF final objectives include: seeking cooperation, mutual understanding, and other new concepts such as co-benefit, and profit sharing. What seemed to be an initiative marked by the presence and protagonist role of the so-called “progressive” governments within CELAC has continued with renewed vigor during the Temor and Macri administrations. In other words, the forum was revitalized by distancing itself from different ideologies.

Macri and Xi Jinping meet

The two heads of state agreed to promote “the Argentine development strategy, expand cooperation in industries such as infrastructure, energy, agriculture, mining, and manufacturing, and implement the existing principle cooperation projects, such as hydro-electric energy and trains” (China-CELAC Forum, May 28, 2017). In addition to signing cooperation documents on numerous issues (including soccer), Argentina announced its request to be integrated into the Asian Infrastructure Investment Bank. Macri reiterated his country’s defense of the “One China” policy, promising to work on strengthening ties between China and Latin America, and increasing communication and coordination in international affairs. Regional Mobility of China IN LATIN AMERICA 07

Temer goes to China

Despite talk of distancing himself from the former government, the Brazilian president also visited China in August of 2017. Both countries agreed to increasingly promote the comprehensive strategic partnership (China-CELAC Forum, August 4, 2017). To accomplish this, the Chinese president proposed consolidating alliances on infrastructure, manufacturing, mining, energy, industrial capacity, and scientific innovation, in addition to his intention to strengthen cooperation ties with BRICS (alliance between Brazil, Russia, India, China, and South Africa), stating that he is open to cooperation with the South American commercial block, Mercosur (Southern Common Market).

China-Latin America and Caribbean Countries Cooperation Plan (2015-2019)

The China-CELAC Forum carried out its first ministerial meeting in January of 2015, where the China-CELAC Cooperation Plan (2015-2019) was approved. This Plan contains different sections such as security, trade, investment, environment, agriculture, international affairs, infrastructure and transportation, energy and natural resources, environmental protection, disaster risk management, and natural disaster mitigation. Numerous sub forums have been established– and are currently in operation – for each topic, with the aim of building exchanges and cooperation platforms. • Policy and security: promote an active exchange between the Chinese National People’s Congress, and the legislative bodies of CELAC member States and parliamentary bodies. It is hoped that over the plan’s five-year duration that it will not only implement the agreements proposed in 2015, but that 1,000 political leaders from the region will be invited to China to coordinate actions in multilateral forums, such as the UN and WTO.

• Infrastructure and transportation: its objective is to strengthen infrastructure cooperation between China and CELAC member States until a China-Latin America and Caribbean Infrastructure Forum is established. It aims to promote “incentives for competent companies from China and CELAC countries to participate in priority projects Regional Mobility of China IN LATIN AMERICA 08

destined to favor Latin America and Caribbean integration, and improve connectivity and inter-communication between China and CELAC member States” (China-CELAC Forum 2016).

• Energy and natural resources: it seeks to strengthen collaboration between energy and mining sectors, including investigation and technology development for the sustainable use of natural resources; significant collaboration and investment in the electricity sector, including projects that generate electricity, high and ultra-high voltage transmission, planning and development of hydrological resources, and the use of biomass and solar, geothermic, and wind energy.

• Environmental protection, risk management, and disaster reduction: this section emphasizes cooperation around climate change, the promotion of low carbon emission technology, and energy saving; it looks to jointly combat desertification and find solutions for pollution control and treatment. It also proposes cooperation efforts to manage natural disasters, and to prevent and reduce risk.

The China-Latin America Infrastructure Cooperation Forum

We are interested in highlighting the China-Latin America Infrastructure Cooperation Forum, proposed in 2015, which aims to “promote mutually beneficial cooperation in the infrastructure field, achieve coupling between pertinent industries from both sides, and accelerate infrastructure construction for integration in the Latin American region” (China-CELAC Forum, 2016).

This forum has two main actors: (i) the Chinese Ministry of Commerce, and (ii) the China International Contractors Association, a guild. It was notable that, since its first session on June 4th and 5th in Macao, China—the forum attracted more than 700 participants, demonstrating a strong ability to convene such activities. The body focuses on promoting investment in transport, roads, ports, communications, energy, electricity, and housing, amongst others; and attempts to stimulate a partnership between companies from both parties, and improve infrastructure integration throughout the region. 09

Where is the money?

Since 2014, after the Leaders’ Meeting between China and CELAC, China designated resources to the China-CELAC Forum (CCF). During this meeting, President Xi Jinping announced that a 35 billion dollar funding package was available from his Government for Latin America and the Caribbean. It has three components:

• Preferential Loans (USD 10 billion)

• Special China-Latin America Infrastructure Loan (USD 20 billion)

• China-LAC Cooperation Fund (USD 5 billion)

What implications do these categories have?

Preferential Loans:

Preferential loans total 10 billion US dollars, which are composed of preferential loans for foreign assistance and for export buyers. The funding is designated for bilateral projects between China and developing countries with diplomatic relations with China. Foreign assistance, both long-term and low-interest, are designated to export buyers and are negotiated by the Ministry of Commerce and the China Exim Bank:

• Preferential Loans for Export Buyers are specific. They enjoy preferential conditions designed to promote economic and commercial cooperation, and do not cover more than 85% of a project’s total funding for a commercial contract.

• Preferential Loans for Foreign Assistance refer to loans that are low-interest and have long repayment terms. This type of loan uses the RMB for accounting purposes, and can cover 100% of project funding for commercial contracts. Regional Mobility of China IN LATIN AMERICA 10

Who requests the loans?

Institutions from borrowing countries authorized to incur external debt; and financial institutions or companies designated by the borrowing countries’ government. However, in both cases, these entities must be granted guarantees by the borrowing country. Once approved, the China Exim Bank will inform the Ministry of Commerce and other competent departments of the Chinese Government in order to proceed with the signing of the necessary agreements for foreign loans.

pecial Loans for China-Latin America and Caribbean Infrastructure

The Special Infrastructure Loan between China and Latin America and the Caribbean is composed of 20 billion North American dollars to be executed by the China Development Bank (CDB). This loan looks to support infrastructure projects: energy, roads, telecommunications, ports, logistics, electricity, and mining in Latin America and the Caribbean with the support of Chinese businesses. The project can be implemented by the Government in question, or by a business in the country alongside a Chinese business. The CDB will evaluate projects and negotiate loan agreements. China-Latin America and the Caribbean Cooperation Fund

The China-LAC Cooperation Fund was created at the initiative of the Chinese Government for a total of 5 billion US dollars, and has two parts: a) the China Co-financing Fund for Latin America and the Caribbean (which will be explained in more detail in the following section on China and the regional bank); and b) the Stock Investment Fund which has 3 billion dollars provided by China and is coordinated by the Chinese National Development and Reform Commission and Eximbank. The stock investment fund consists in purchasing stocks and bonds for projects in energy and resources, infrastructure, agriculture, manufacture, scientific-technology renovation, computer science, and cooperation capacity building, amongst other fields. 11

China and the regional bank. Chinese Co-financing Fund for Latin America and the Caribbean

Chinese Co-financing Fund

The Chinese Co-financing Fund for Latin America and the Caribbean is part of the China-LAC Cooperation Fund. It was created in 2013 by an initiative from the Chinese Government with a capital of 2 billion dollars. The fund is coordinated by the People’s Bank of China, and executed by the IDB. It looks to “provide financial support for educational, hydraulic works, energy, and infrastructure projects, as well as other fields, in Latin American and Caribbean countries” (IDB, 2013). This money represents 5.7% of Chinese funding arrangements for Latin America and the Caribbean. The fund is the first of its kind established by China and a multilateral development bank and, according to the IDB president, it will serve as a reference point for future cooperation models between China and other countries.

In order to access this joint fund, countries must be members of the IDB and CELAC. The Special Infrastructure Loan between China and Latin America and the Caribbean, and the China-Latin America and Caribbean Cooperation Fund are open to all CELAC countries, and allocation can be either bilateral or multilateral, as long as they have a good economic performance.

There is information up to September 2017, and it shows that the Chinese co-financing fund has investments in 50 projects in 17 countries in the region, and three regional projects. In general, the amount financed by the fund ranges between a minimum of 5 million dollars, and a maximum investment of 50 million dollars. IDB loans to projects are often complimented with funds from common equity, the Inter-American Investment Corporation (IIC), or local contributions. 12

Supported Projects

The following is a list of projects that receive financing from the Chinese Co-financing Fund:

Total Amount Fund of Financing Amount CHC COUNTRY IDB SECTOR PROJECT TITLE

(Millions (Millons in USD) in USD) Strengthen Human and Barbados Social Inversion Social Development 10 5 in Barbados Program to improve Barbados Financial Markets credit Access for Productivity 35 17,5

Private Companies , Livestock Alliance, Bank Bolivia for SME financing 15 5 and SME Development Private Companies and Economic Alliance Bolivia Bank for SME Financing 18 6 SME Development AgricultureVale do Parana S.A Alcooland e rural Brazil Valley do Parana S.A 12,5 Azucar Development Brazilian Securities Brazil Financial Markets Association for Mortgage 125 25 Titles Alliance with ABC Bank Brazil Financial Markets for Ecological Financing 150 25

BDMG Alliance for Infrastructure and Brazil Financial Markets Municipality Services 150 50 Financing Chile E nergy FV Solar Project “Los Loros” 56,4 12,8 Chile E nergy PV Solar Project Arica I 50,1 13,9

Colombia Financial Markets Support Program for the Financial System II Reform 450 50

Colombia Energy Hydroelectric Project Ituango 50

Costa Development and urban Coopeservidores Alliance 10 Rica Housing to Finance Housing

¹http://chinaenamericalatina.info/es/consulte-la-informacion-de -proyectos-de-inversiones-chinas-en-america-latina-desde-el-mapa/ 13

Costa Transportation Transport Infrastructure 450 50 Rica Program

Costa Costa Rica National Bank Financial Markets Association for SME 100 25 Rica Financing

Program to Strengthen the Ecuador E nergy National Electricity 80 30 Distribution System II Ecuador Industry Adelca 49 12

Private Companies Credife – Alliance for Ecuador 70 20 and SME Development Microenterprise financing

Private Companies Access to Financing for Ecuador and SME Development Small and Medium 95 25 Producers National Program for Ecuador Water and Sanitation Investment in Water, 150 30 Sanitation and Solid Residue Strengthening Program for Ecuador Energy the National Electricity 220 50 Distribution System El Alliance for SME Financing Salvador Financial Markets with Davivienda 80 20 El Salvador Honduras Financial Markets Banpais 12 4 Jamaica Reform/State Public Sector Modernization Efficiency Program 25 11 Cubic Alten PV México Energy 150 50 Solar Project Program to Strengthen Treasury Management of México Reform/State 650 37,6 Modernization Federative and Municipality Entities

ECON -Program for Green México Environment and 252,46 50 bonds for Pemex Natural Disasters Efficient Energy

Private Companies and México Mexico Fund for SME 45 15 SME Development Mezzanine Debt Containers Port and México Transportation Logistical Installation 142,5 25 Contecon Manzanillo 14

Private Companies and Lafise – Bancentro Alliance SME Development for SME financing North Coast Project for Energy Electricity Generation and LNG Terminal Sanitation Program for Water and Sanitation Panama City and Bahia de Panama II Alliance for Housing – Financial Markets General Bank Financing

Energy Panama Sustainable Rural Electricity Program Neighborhood Road Transportation Improvement Program

Alliance with the Continental Paraguay Private Companies and Bank to Finance SME 45,93 10 SME Development Internationalization

Private Companies and Sudameris Bank Association Paraguay for Small and Medium 26,25 5 SME Development Enterprise Financing Peru Transportation 450 50 PPP Lima Metro, Lines 2 and 4 “My House” Fund Alliance Peru Financial Markets for Sustainable Social 150 30 Housing Finance Eco-Business Fund for Latin Regional Financial Markets 300 20 America and the Caribbean Regional Industry Fitesa Regional: Brazil 20,25 and Mexico Regional Financial Markets Local Currency Fund II 22,5 7,5 Financial Sector Suriname Financial Markets 100 50 Strengthening Project II Transmission line Uruguay Energy 38,1 17,86 Melo-Tacuarembó Uruguay Energy FV Solar Project 85 19,3 Casablanca and Giacote Uruguay Energy Eolico Colonia Arias Project 125,72 36

Uruguay Energy Eolico Valentines Project 125,14 36 15

Program for Productive Uruguay Science and Technology 40 20 Development Innovation Sanitation Project for the Uruguay Water and Sanitation Western area Coastal City 75 30

Uruguay Energy Eolico Carape I & II Project 132,6 44,2

Source: Based on database from IDB projects.

As can be observed in the table, the projects mainly belong to the energy sector (13 projects), financial markets (13), support for private companies and SME development (8), transportation (4), and the rest are divided amongst projects for government reform, water and sanitation, industry, agriculture, and the environment. Support for energy projects includes four wind energy and solar projects financed in Uruguay and two in Chile. Projects from the “financial market” sector are alliances with banks and financial institutions which provide financial support to different projects, such as loans to SME, women-led companies, sustainable housing, amongst others.

At the country level, those with a larger number of finance resources are: Uruguay (7), Ecuador (6), Mexico (5), and Panama (4). There are two funds for regional projects: 1) Eco-Business Fund for Latin America and the Caribbean, with the objective of promoting business practices that contribute to biodiversity conservation and the sustainable use of natural resources; and 2) Local Currency Fund II, which provides financing to microfinance institutions, in order to grant loans to SMEs.

Support for projects based on high level socio-environmental conflict are also included, such as the Ituango hydroelectric dam, ¹which is Colombia’s largest energy project under construction. The construction of the hydroelectric dam has impacted the ways of life and economic activities of those who inhabit the area, violating human rights and damaging the environment. Additionally, there was not a consultation or adequate participation from the population regarding the dam.

¹ For information about this case, see the letter to request suspension of said loan. Movemiento Rios Vivos (November 27, 2016). 16

Projects formulated through the Public-Private Partnerships (PPP) are also included, such as the Lima Metro, Line 2 and Line 4. Funding originating from the multilateral bank, and now with support from Chinese financing for projects within the PPP scheme, have yet to solve the problems that this model presents (such as cost overrun, corruption, a lack of transparency in negotiations, and a strengthening of company and investor rights at the cost of local communities’ rights).

China-Latin America and the Caribbean Investment Platform

Other investment funds were promoted in the context of the Sixth China-LAC Business Summit, held in China in 2012. Here the IDB presented a capital investment platform, created jointly with the China Exim Bank, which seeks to capitalize on 1.8 billion dollars originating from private investors that aim to strengthen mid-sized Latin American businesses and firms dedicated to infrastructure and natural resources (IDB, 2012b). The investment platform is based on a letter of understanding signed in 2011, where both institutions announced the plan to establish a mechanism to finance projects in Latin American and Caribbean countries that were borrowing members of the IDB (IDB, 2012a).

According to the IDB, the two designed:

“a platform consisting of three regional investment funds to support economic and financial integration between Latin America and the Caribbean and China. It is expected that LAC-China funds will attract a geographically diverse group of investors (including Chinese investors), which will help spread out capital risk for businesses and projects that operate in sectors vital to LAC’s development, such as infrastructure, mid-sized businesses, and natural resources (agroindustry, energy, and mining in the pre-production phase). (IDB, 2012c).

The funds will include:

• The LAC-China Infrastructure Fund: The fund has US $1 billion, and is centered on investment in the infrastructure sector, such as roads, ports, railways, airports, storage facilities, and energy. It will be administrated by Macquarie Infrastructure and Real Assets (a division of the Macquarie Group). 17

• LAC China Mid Cap Corporate Fund / Darby Private Equity: The fund has US $500 million and will focus on supporting mid-size businesses in a variety of sectors such as: industrial manufacturing, agroindustry, and financial services. The average size of a transaction is US $20-30 million.

• LAC-China Natural Resources Fund: the aim of this fund is to support the production and sale of products necessary to satisfy basic food, mineral and energy needs. This fund will invest in a diverse portfolio of projects and, by and large, will allocate its resources to mid-size enterprises operating in the agroindustry sector (40%), renewable energies and investments (30%), and added value activities related to natural resources and mining in the pre-production phase (30%). The fund’s objective is to commit up to $350-500 million to be divided amongst 10 investments that average between US $20-30 million. These line items must be administrated by a variety of sectors, and by joint venture enterprise between EMP Global and SinoLain Capital.

Environmental and Social Management Report for the Investment Platform

A noteworthy aspect within our work is that:

[…] given that Latin America and the Caribbean are richly endowed in natural resources and areas with sensitive biodiversity, it is paramount that the investments in the region are carried out in an environmentally and socially responsible manner, and that the highest standards of corporate governance are applied. To ensure these norms, IDB policies will orient investment practices of the investment funds and will establish a process to collect and publish information on the environmental and social impact, and the investment Fund’s development. (IDB, 2012c, emphasis added).

The Report on Environmental and Social Management (IDB, 2012d) on the three funds establishes the following guidelines:

• They should fulfill IDB safeguard policies and applicable local environmental and social laws and regulations;

• Each investment will be evaluated on its impact and environmental and social risks, under categorization criteria for environmental impact, which will be consistent with the IDB’s categorization criteria; 18

• Investments will be subject to an environmental and social diligence review by the Fund’s management and, in the case of high risk operations, due diligence will have to be supported by an external consultant in order to confirm the fulfillment of an Environmental and Social Management System (ESMS);

• Routine reports and supervision will be required;

• Routine audits will be carried out for projects in category A;

• Corrective action plans will be implemented, as necessary, in order to identify and remedy non-compliance;

• Timely declassification of non-confidential information, on potential investments in category A must be carried out within a reasonable time before the final decision of each fund’s investment committee.

• In the case that non-compliance cannot be remedied— on both the project and ESMS level —adequate contractual resources will be required for the IDB with respect to each fund.

• An Environmental and Social Compliance Report will be written and presented to evaluate environmental and social impacts of the portfolio, with a special emphasis on the most sensitive environmental and social questions;

• It will be required that funds obtain approval from the Bank before investing in high risk projects were IDB funds are used. 19

Final Comments: Impact and Challenges of China-Latin America Commercial Relations:

Since 2000, Chinese exports to Latin American have grown significantly. The total proportion of imports has increased from 2.3% in 2000 to around 16% in 2013. Meanwhile, in 2000, China did not rank in the top three countries of origin for imports to Latin America and the Caribbean. By 2014, it was within the first four countries of origin for imports in almost all countries in the region, and ranks first in Bolivia, Brazil, Uruguay, and Cuba, and second in Argentina, Chile, Colombia, Costa Rica, Ecuador, Mexico, Nicaragua, Paraguay, the Dominican Republic, and Venezuela.

Even though China has acquired a protagonist role in the relationship with Latin America and the Caribbean, CEPAL has stated that the current commercial relationship with China cannot contribute to long-term regional economic development. This is due to China’s economic slowdown in the past years, which: has negatively affected the price of raw materials, due to the minimal added value for products exported to China, low reciprocity, and favorable conditions for Chinese businesses involved in energy and infrastructure investment (Durán and Pellaranda, 2017).

Nevertheless, and as mentioned previously, the shift from progressives towards governments such as Temer in Brazil and Macri in Argentina has not altered the relationship with China. On the contrary, a continuation of Chinese financing toward these countries has been observed. For example, in 2016, Brazil received approximately 72% (almost US $15.2 billion) of the loans from Chinese banks for Latin America and the Caribbean. Specifically, the national petroleum company, Petrobras, received the majority of these funds, despite being immersed in a corruption scandal (Inter-American Dialogue, 2017).

One consideration is that China’s role in Latin America should be seen through the lens of dominant extractivism. Svampa and Slipack (2015) have shown that the majority of Latin American governments, regardless of ideological tendencies, have accepted that the current economic dynamics, based on an international demand for commodities, cannot be stopped. In addition, they consider it beneficial for the whole of Latin American countries, underestimating the socio-environmental conflicts it has generated. For example, the Argentine Government recently sent a trade mission to China to attract mining investments worth 30 billion dollars for 32 projects, and has declared mining as the “new pillar” of the relationship between the two countries (P. 12, September 20, 2017). Thus, a confirmation of a new privileged business relationship with China, based 20

on a demand for raw materials will be sustained and reinforced in the following years. Challenges will include revealing the impacts and human rights violations that occur due to Chinese investments, as well as contributing to an improvement of social and environmental standards for these projects. Additionally, it is necessary to be attentive to where money from the investment Funds are destined (including what they are financing and impacts generated), and the creation of new bilateral cooperation agreements within the framework of China’s Policy Paper on Latin America and the Caribbean.

References

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Regional Mobility of China IN LATIN AMERICA

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